Oracle Shock Rattles US AI Stocks as Wall Street Hedges Bets with China Investments

Technology stocks on the New York exchanges tumbled despite the Federal Reserve's decision to cut interest rates by another notch on December 10, as concerns about artificial intelligence investment profitability resurfaced following Oracle's announcement of higher-than-expected capital expenditure plans.

Wall Street investors are now pouring substantial capital into Chinese AI companies alongside their US holdings. The move reflects anxiety that the outcome of the US-China AI competition remains uncertain, despite Washington's efforts to contain China's technological advancement. Investors appear set to navigate a complex landscape between the uncertainty surrounding overvalued US AI firms and the rapid rise of Chinese competitors.

**Oracle's Data Center Spending Surge Triggers Tech Selloff**

The Nasdaq Composite Index opened lower on December 11 and closed down 0.26%, unable to recover momentum throughout the session. The Fed's 0.25 percentage point rate cut announced the previous day, along with a 0.5 percentage point upward revision to US economic growth forecasts, proved insufficient to lift share prices.

AI-related stocks fell broadly, with Nvidia dropping 1.55%, Apple declining 0.27%, Amazon sliding 0.65%, Google parent Alphabet falling 2.43%, Broadcom losing 1.60%, and Palantir edging down 0.20%.

The catalyst was Oracle's fiscal year 2026 second-quarter (September-November) earnings released after market close the previous day. The company reported quarterly revenue and operating profit slightly below market expectations while raising its capital expenditure guidance, triggering concerns about the profitability of AI investments.

Oracle reported second-quarter revenue of $16.1 billion, up 14% year-on-year, and adjusted operating profit of $6.7 billion, up 10.5%. Cloud infrastructure revenue, which drew the most attention from Wall Street, rose 68% to $4.08 billion but missed market expectations. Cloud sales increased 34% to $7.98 billion, also falling short of forecasts. The order backlog grew by $68 billion to $523 billion at the end of the second quarter from $455 billion at the end of the first quarter.

The decisive blow to the market came from capital expenditure, which reflects data center spending. Oracle's second-quarter capex surged to approximately $12 billion from $8.5 billion in the first quarter, an increase of $3.5 billion. This exceeded market expectations by $3.7 billion. Furthermore, Oracle CFO Doug Kehring raised full-year fiscal 2026 capital expenditure guidance to approximately $50 billion during the earnings call, $15 billion higher than previous estimates. The company left its full-year revenue forecast unchanged at $67 billion, the same figure presented in October. In effect, Oracle increased spending dramatically while keeping revenue projections flat. The company also issued $18 billion (approximately 26.4 trillion won) in corporate bonds in September. As a result, Oracle's credit rating has recently approached BBB, near the bottom of investment grade. Credit default swap premiums reflecting default risk are also trending higher.

**Oracle, Once Home to World's Richest Man, Plunges 40% in Three Months**

Market reaction to Oracle's plans was harsh. Oracle shares rose 0.67% during regular trading on December 11 but plunged 11.6% in after-hours trading following the earnings release. The stock fell another 10.84% on December 12.

Oracle co-CEO Clay Magouyrk said in an earnings statement that "Oracle is exceptionally good at building and operating high-performance, cost-efficient cloud data centers," adding that "we are able to build and operate more data centers because our level of automation is very high."

CFO Kehring explained during the earnings call that "the majority of capital expenditure goes to equipment for data centers" and that "land, buildings, and power are all handled through leases." He added that "we do not pay rent until the data centers and power facilities are completed and delivered" and that "we are working to maintain our credit rating and will keep that commitment."

The current share price has fallen nearly 40% from its all-time high recorded in September. On September 9, Oracle announced first-quarter results showing order backlog of $445 billion, up 359% year-on-year, causing shares to surge 35.95% the following day. It was Oracle's largest single-day gain in 33 years since 1992.

At the time, Oracle's order backlog was roughly double market expectations. The company also presented rosy forecasts that cloud infrastructure revenue would reach $18 billion, up 77% from the previous year, and grow to $144 billion in four years.

The stock surge briefly made Oracle founder Larry Ellison the world's richest person, with net worth swelling to $393 billion, surpassing Tesla CEO Elon Musk at $385 billion. His net worth increased by more than $100 billion in a single day.

Oracle, founded in 1977, is an IT giant that commands a significant share of the global database management system market. In the AI ecosystem, it competes with Google, Microsoft, and Amazon in the enterprise platform and cloud market.

Concerns about overinvestment stemming from Oracle also dragged down oil prices. West Texas Intermediate crude for January delivery fell $0.86 (1.47%) to $57.60 per barrel on the New York Mercantile Exchange on December 11, the lowest since October 20. Prices briefly rebounded following the Fed's rate cut decision the previous day before resuming their decline.

**Wall Street Pours Money into Chinese AI Stocks as Hedge Against US-China Tech Race**

As US AI stocks continue their volatile streak, Wall Street has recently been investing heavily in Chinese companies. The move is interpreted as a form of insurance given there is no guarantee the US will achieve complete victory in the AI competition.

According to The Wall Street Journal on December 10, American investors are actively investing in exchange-traded funds and other vehicles, helping drive up shares of Chinese technology companies. Venture capital firms headquartered in China are also raising US dollar-denominated funds for local AI investments. Some American foundations that had avoided China for years have begun considering investments in Chinese companies. WSJ reported that American investors buying shares on stock exchanges have been increasing since DeepSeek demonstrated earlier this year that Chinese AI models can compete with American ones.

Alibaba, listed in New York and Hong Kong, has surged more than 80% year-to-date through December 10, its best performance in four years. Tencent and Baidu rose 50% over the same period, while Cambricon gained nearly 120%. Foreign investment in China had been declining from 2021 through last year due to weak domestic demand, US-China tensions, and property market regulations. This year through October, however, foreign capital inflows into mainland Chinese markets totaled $50.6 billion (approximately 74 trillion won), the highest since 2021.

According to ETF.com, more than 5 trillion won flowed into two major ETFs investing in Chinese technology companies over the past six months. KraneShares CSI China Internet received net inflows of $2 billion (approximately 2.946 trillion won), while Invesco China Technology attracted $1.8 billion (approximately 2.651 trillion won). BlackRock, the world's largest asset manager, noted in July that capital inflows into Chinese technology ETFs were outpacing those for US counterparts.

According to data provider LSEG, large funds managed by Vanguard Group, BlackRock, and Fidelity have also increased their holdings of Alibaba's Hong Kong-listed shares this year.